Market – Dear Naspers…

The current share price of Naspers is trading at a significant discount to the sum-of-the-parts valuation. It is time for management to step up and unlock this value.

Here’s a thought on an immediate value unlock play:

Hire an investment bank or a consultancy to research a possible restructuring of the business. The main focus being unlocking the massive discount in the current share price.

Announce in a SENS that such and such a bank has been hired to investigate a possible restructuring of the current business, investors are advised to trade with caution.

Even if you are only half serious about a restructure. A little bit of poker or gamesmanship with the market is all that is needed to get the Naspers stock rocketing closer to fair value. (Remember when Mark Cutifani said he would sell Kumba, well guess what, he never did! Nonetheless the market liked his chat.)

Look how well a split worked for GOOGLE when it restructured into ALPHABET!

A NEW NASPERS:

I’m no investment banker, but here’s what I would do:

I would split the current Naspers into separate entities and list them all. So Naspers would be listed and then the new entities would also be listed. Each management team would be responsible for captaining their own ship so to speak, allowing the market to value each entity accordingly. The same way PSG is listed and controls other listed entities such as Capitec, Curro and Zeder.

– I like the idea of combining a Tencent and Nasper Ventures entity. Then reverse listing this new Tencent/Naspers Ventures entity into the US via an acquisition (more of this later).

– Splitting the ecommerce division into a separate entity. The focus would be on driving future growth through their payment platforms and adding to their cryptocurrency platforms.

– Combining the Russian assets with the other ad based revenue businesses including the media assets in South Africa. These assets would then become a key priority and management can consolidate the industry further and pivot accordingly. (The paid TV business could possibly become a takeout target for mobile data companies in Africa such as MTN, VODACOM.)

Otherwise, splitting the the entities into growth and ex-growth would also make sense or alternatively splitting by locations/use case or cash flows could also work. There are lots of options.

(I would also give the Stellenbosch mafia a call- Jannie Mouton, Marcus Jooste or Christo Wiese would no doubt have some suggestions. I can’t help but think if one of them were driving this bus, the tickets would be R5000,00 a piece.)

HUNTING UNICORNS AND ELEPHANTS:

Bob’s office is in Amsterdam. Why?

Why is it not in China? Being closer to the action of Naspers’ largest holding would make sense.

Or in the heart of Silicon Valley, where it would allow the CEO to better ‘hunt unicorns’ in the tech space (Snapchat,etc). As well as partner with start-up programs such as Y-combinator, allowing early entry into exciting new talents/start-ups.

With Naspers’ balance sheet and the Chinese connection, I would like to think that it would certainly be highly regarded as a sort after investor into series A, B, C rounds for most startups.

Yet, it has failed dismally to find another healthy unicorn after its Tencent investment. Peter Thiel managed to find many more unicorns after Paypal. Chris Sacca found Uber after hitting it big with Twitter. Paul Graham found Airbnb, Dropbox, Twitch, etc! So although Naspers did an exceptional job in finding Tencent, it also suggests that since that success, the management team has somewhat failed to create a snowballing of this success with its more recent investments.

At the moment, I can think of one elephant currently for sale on the open market- TWITTER. What about purchasing or merging with Twitter and reverse listing a new Naspers Ventures/Tencent/Twitter entity into the US?

Combining scale and synergies between Tencent and Twitter is exciting. It seems Tencent has somewhat mastered the art of monetization. This is something that Twitter has failed hopelessly at- using your relationship to help the two to work together could be a big win for both companies and most of all- the Naspers shareholders.

Unfortunately Bob, I don’t see many elephants or unicorns in Amsterdam, only grasshoppers! 🙂

CURRENT STRATEGY CONCERNS:

Look I get it. Naspers’ strategy was to create an emerging market tech play, but let’s face it, it just isn’t working anymore. The market is confirming this.

The way I see tech is a bit different. My theory is that you need to make it with scale in America and then the rest of the world follows suit. Look at Uber, Airbnb, Dropbox, etc- they built scale in the US and then moved onto world domination as the rest of the world followed suit.

It’s simple, make it in America- rest of the world follows suit by using the same popular products. And then China copies these products in their own market with government protection.

So the tech space is AMERICA, REST OF WORLD, CHINA.

Basically my point is, if you not in America as a Tech company or tech investor, you’re losing.

It was for this very reason that I was particularly delighted when Naspers announced its entry into the US via Naspers Ventures.

The strategy however, has me baffled!

It is concerning that Naspers is pursuing a strategy of acquiring prehistoric dinosaurs in the tech space.

Craigslist, seriously?

Craigslist is a good brand but the desktop technology and use case is outdated, soon to be swallowed by the likes of Facebook and newer technologies on mobile devices. In fact it’s already happening!

Added to this, the purchase of Udemy didn’t make sense to me at all. The education space is a great focus for Naspers, but Udemy is prehistoric in the space. I think I may have used it once, yonks ago! Plus the competition is now huge with many companies opting for freemium models.

I would much rather see management focusing on exciting companies like Duolingo and other language learning (TEFL) startups which can be integrated/synergized and sold into a large Chinese user base.

In India, watch out! Bezos is renown for stabbing his competitors in the eye. I see the only slight way to stay ahead of Amazon is by beating them to the Bollywood and cricket content before they integrate that as a free offering for Prime users in India. In long run, I just can’t see Amazon losing in the Indian market.

I would be a seller of anything related to Flipkart if/when it is hopefully unbundled in a restructure, perhaps it will could be sold outright along with Souq to Amazon. (Remember this is just me and it takes many to make a market, so these companies still deserve some value!)

FUTURE STRATEGY POTENTIAL/IDEAS:

I think focusing on startups that can add future value to Tencent are what Naspers should be pursing. It’s like buying new clothes for your kid as he grows older.

And it certainly would be thrilling to see Naspers going after an elephant and succeeding.

As far as Tencent value adds are concerned. A play on Draftkings or another fantasy sports platform would make sense. A Draftkings type company based in Macau- where users play daily fantasy tournaments/competitions on e-sports/games is perfectly aligned with Tencents gaming interests. In fact most of the e-sports would be are already Tencent owned. E-sports is going to be huge. In fact it’s already huge!

Also the other new Naspers ad based revenue entity (new entity as stated in ‘new naspers’) could focus on consolidating the online fantasy forum sites such as rotogrinders.com. These are interactive sites that offer fantasy league gamers- stats,tips,etc on the upcoming tournaments/competitions. Naspers could also use these sites as a platform to stream the live fantasy tournaments.

There are some interesting startups in the live video space. Think of CheddarTV- the new CNBC for millennials or ArsenicTV, the new live video service that is entirely Snapchat based and focused on becoming the modern day Playboy magazine for millennials. Both these would fit extremely well into an new ad based entity.

Although live streaming does compete on the distribution front with all the bigwigs- Amazon, Facebook, Alphabet, etc. It’s the content that is important.

In my opinion, it would also be encouraging if they dropped the e-commerce/classifieds strategy entirely. The market is definitely confirming that they should!

There is nothing wrong with conceding and changing strategy. There are many more exciting opportunities out there. Think of Virtual Reality, Augmented Reality, Artificial Intelligence, Electric Cars, Space Frontier, Biotech, Live Video, etc.

Wrestling with Amazon and Facebook buy/sell groups for ecommerce growth is just silly!

MORE FIRECRACKERS:

I’d love to see Naspers thrive again. As of yesterday, it is showing investors a 2016 YTD return of negative 4.44%. Pathetic!

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